Can you look at my LOE?

[Anonymous]

We're using rent payments as a non traditional credit reference. In August 2011, we paid cash and here is my LOE for that. My LO hasn't asked me for this LOE yet, but I figure that they will probably ask for it at some point so I just went ahead and wrote something up anyway. Suggestions/thoughts are welcome.

In July 2011 my wife needed to have all four of her wisdom teeth removed due to them being impacted and causing her severe pain. Her appointment was set for July 15, 2011. We had not planned on the nearly $2,000 it would cost us for this procedure, but we found out that our insurance was not going to cover the majority of this expense. This put a financial strain on us for the next month.  In early August we were still recovering from this financial blow. About three weeks later on August 06, 2011 my vehicle, which I use to get to work, needed repairs to the breaks because they were in dangerously poor condition. If I didn’t do these repairs, I would not have been able to get to work. Over the next 2 days I spent $106.99 on parts for the vehicle (see 4 separate transactions to Advanced Auto on 08/06 and 08/07). As of 08/08, my landlord had not cashed the rent check which my wife had sent them in late July and I realized that if they cashed it after the purchase of the car parts, we would be in danger of bouncing the check and they could incur fees. I contacted my landlord immediately to notify them of the situation and let them know that I could drop cash off to them that same day. I ordered a stop-check through my bank for Check #902, took out $765 from my checking account on 08/08 and I had the remaining $60 in my pocket. I dropped it off to them the same day with no further incident. The landlord did not give us late fees because they knew that we had sent the check on time, but they waited an excessive amount of time to cash it. They did, however, incur a $20 fee from their bank when we ordered the stop-check through our bank and we compensated them for that in our next rent check (Check #930).

[cdtotten]

I think, in general, people are overly detailed and afraid of providing a letter of explanation.

IMO, your letter is too detailed and that much information is not needed. If they are questioning a cash withdrawal (which they probably will not), all you have to say is "we withdrew cash to pay our monthly rent that month." If they need further proof, you can obtain a receipt from the property manager/landlord. When you start talking about financial problems and how you couldn't afford a medical procedure, you are simply putting doubt in the underwriter's mind. If you couldn't afford to easily pay cash for a medical procedures, then what if your furnace broke the next day... see where I am going. Don't point out financial distress.

I wouldn't worry.

[Walt_K]

Tend to agree with the above.  What is it you are trying to explain?  Is it the date of your rental payments, and the fact that you have one payment that didn't come through by check?  Can you ask your landlord for receipts for your rent for this time period?

[Anonymous]

The LO said that paper receipt isn't enough because, in her words, "anyone can go to Walmart and buy a pad of receipts and write one out." She said that she had a guy totally turned down for a mortgage because he paid 2 years of rent in cash and had no acceptable way to document it. So I dont know what other options I have other than to provide a detailed letter along with bank statements to support it. I'm waiting to hear back from LO and I'll keep you guys updated. I'm just trying to be transparant so that we don't get any unwanted surprises at the last minute, ya know?

[Walt_K]

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@Anonymous wrote:
The LO said that paper receipt isn't enough because, in her words, "anyone can go to Walmart and buy a pad of receipts and write one out." She said that she had a guy totally turned down for a mortgage because he paid 2 years of rent in cash and had no acceptable way to document it. So I dont know what other options I have other than to provide a detailed letter along with bank statements to support it. I'm waiting to hear back from LO and I'll keep you guys updated. I'm just trying to be transparant so that we don't get any unwanted surprises at the last minute, ya know?

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Completely understand, and if the LO/underwriter has communicated a specific concern, then you want to address it.  We're just trying to point out that you shouldn't assume there is a problem.  As an example, I am currently going through the process, and I haven't sold my condo yet even though it is on the market.  I asked for them to run the numbers assuming I am going to carry both mortgages because I didn't want my condo sale to be a condition of the new loan approval.  While my DTI is still within acceptable limits with both payments, the underwriter wanted an LOE about my intentions for the condo nonetheless.  All they wanted was a very short "I have listed my condo for sale and intend to sell it."  This is definitely one of those issues where less can be more. 

Have they already questioned the one month's rent payment that is out of the ordinary?  If not, you might not even need an LOE.  In any event, I'll defer to others, this is only my second home purchase, and I didn't have to provide any LOEs for the first one.  But the few I've been asked for this time around, the LO has told me they just need a very short explanation. 

[Anonymous]

I just heard back from the LO and she said that the letter was excellent. So...I dunno. She has 30+ years of experience dealing with first time homebuyers, especially those with credit issues. But at the same time, I feel like some of you folks here on MyFico can be more knowledgable than loan officers at times. So I'm not sure what to think. I want to be transparent and painfully honest because that would hopefully prevent any of these nightmares I hear about where people lose the deal on closing day. But I don't have enough experience in this area to know just how honest/transparent I should be.

[cdtotten]

Usually your loan officer will no more than anyone, because they know the underwriters and what they will want to see from past experience. If your LO says its good, then go for it. She has no incentive to hurt your chances... it would cost her money.

[Anonymous]

Thanks cdtotten. I always wondered if LO get some sort of incentive or commission just from submitting a mortgage application, even if it doesn't get approved.